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FIFTH
SECTION
CASE OF FORMINSTER ENTERPRISES LIMITED
v. THE CZECH REPUBLIC
(Application
no. 38238/04)
JUDGMENT
(Just
satisfaction)
STRASBOURG
10 March
2011
This
judgment will become final in the circumstances set out in Article 44
§ 2 of the Convention. It may be subject to editorial revision.
In the case of Forminster Enterprises Limited v. the Czech
Republic,
The
European Court of Human Rights (Fifth Section), sitting as a Chamber
composed of:
Dean Spielmann,
President,
Elisabet Fura,
Karel
Jungwiert,
Boštjan M. Zupančič,
Isabelle
Berro-Lefèvre,
Ganna Yudkivska,
Angelika
Nußberger, judges,
and
Claudia Westerdiek,
Section
Registrar,
Having
deliberated in private on 15 February 2011,
Delivers
the following judgment, which was adopted on that date:
PROCEDURE
- The
case originated in an application (no. 38238/04) against the Czech
Republic lodged with the Court under Article 34 of the Convention for
the Protection of Human Rights and Fundamental Freedoms (“the
Convention”) by Forminster Enterprises Limited, a company
registered in Cyprus (“the applicant company”), on 22
October 2004.
- In
a judgment delivered on 9 October 2008 (“the principal
judgment”), the Court held that there had been a breach of
Article 1 of Protocol No. 1. In particular, the Court found a
violation on account of the excessive duration of the seizure of
shares held by the applicant company in the context of pending
criminal proceedings (Forminster Enterprises Limited v. the Czech
Republic, no. 38238/04, § 77, 9 October 2008).
- Under
Article 41 of the Convention the applicant company sought millions of
euros in just satisfaction for damage sustained and costs and
expenses.
- Since
the question of the application of Article 41 of the Convention was
not ready for decision, the Court reserved it and invited the
Government and the applicant to submit, within three months, their
written observations on that issue and, in particular, to notify the
Court of any agreement they might reach (ibid., § 80, and point
3(b) of the operative provisions).
- The
parties did not reach an agreement on the question of just
satisfaction.
- The
applicant company and the Government each filed observations.
THE LAW
- Article 41 of the Convention provides:
“If the Court finds that there has been a
violation of the Convention or the Protocols thereto, and if the
internal law of the High Contracting Party concerned allows only
partial reparation to be made, the Court shall, if necessary, afford
just satisfaction to the injured party.”
A. Pecuniary Damage
- The
applicant company requested 704,752,000 Czech korunas (CZK) in
respect of pecuniary damage. This claim was supported by an expert
opinion in which the calculations were based on the value of the
shares in 1999, minus the value of the shares at present, plus
interest on the money received from a hypothetical sale transaction
had the shares been sold the day the seizure began. The expert report
further contained a graph according to which the price of the shares
in question was more or less stable from the beginning of 2001 until
May 2007 when the report was drafted.
- The
Government noted that the violation the Court found in its principal
judgment was solely connected with the excessive duration of the
seizure of the shares. They were of the view that there was no causal
link between the damage claimed and the violation found. They noted
that the ownership of the shares was the subject of pending
litigation. They submitted a document based on which the receiver of
an insolvent company TREND had decided to include the shares in its
assets on 25 July 2008. Consequently, in the Government’s view,
any compensation for alleged pecuniary damage would be nothing else
than mere speculation as it was not clear who owned the shares.
- The
Government further disputed the accuracy and truthfulness of the
expert opinion on which the applicant company based its pecuniary
claim. They presented another expert opinion, which used a similar
methodology of calculating the loss suffered by the applicant company
but it distinguished between various dates when the seizure became
contrary to Article 1 of Protocol No. 1. The report concluded that
even taking into account the interest earned from the money received
from a hypothetical sales agreement of the shares, the applicant
company could not have suffered any damage if it had sold the shares
between April 1999 and the date of the delivery of the principal
judgment because of the steadily rising price of the shares. The
Government further recognised that the seizure of the shares had
probably already become a disproportionate measure owing to its
duration before the date the principal judgment was adopted.
- The
Court reiterates that, in principle, a judgment in which it finds a
violation of the Convention imposes on the respondent State a legal
obligation to make reparation for its consequences in such a way as
to restore as far as possible the situation existing before the
breach (see Papamichalopoulos and Others v. Greece (Article
50), 31 October 1995, § 34, Series A no. 330-B). The Court
must determine at its discretion the level of just satisfaction,
having regard to what is equitable (see Sunday Times v. the United
Kingdom (no. 1) (Article 50), 6 November 1980, § 15, Series
A no. 38). For an award to be made in respect of pecuniary damage the
applicant must demonstrate that there is a causal link between the
violation and any financial loss alleged (see, for example,
DruZstevní záloZna Pria and Others v. the Czech
Republic (just satisfaction), no. 72034/01, § 9, 21
January 2010).
- The
Court observes that, in its principal judgment, it found that the
applicant company’s right to dispose of their shares had been
suspended for more than eleven years, which did not strike a fair
balance between the general interests of society and the interests of
the applicant company. The Court thus found a violation based
exclusively on the excessive duration of the seizure that was
otherwise legal and pursued a legitimate aim. The Court considered
the seizure to be disproportionate on the day of its principal
judgment. It did not indicate whether the seizure had already become
disproportionate at some point before the principal judgment.
- The
expert opinions submitted by the applicant company and the Government
agree on the method of calculating the loss that corresponds to the
depreciation of the value of the shares from a certain point in time.
The Court is, in principle, prepared to accept this method of
assessing the damage. The precise calculation thus depends on the
date the seizure became contrary to the Convention owing to its
excessive duration.
- In
its principal judgment the Court did not specify when exactly the
duration of the seizure became excessive. Assuming that the violation
occurred only on the date of the principal judgment, the applicant
company could not have suffered any loss from the depreciation of the
price of its shares during that one day. It seems, however, to be
common ground between the applicant company and the Government that
the violation occurred some time before 2008. Yet, even assuming that
this is the case, the Court still does not find any loss suffered by
the applicant company.
- As
both the expert reports have shown, the price of the shares has been
more or less stable since 2001; in fact it appreciated slightly.
Consequently, the applicant company did not suffer any pecuniary
damage owing to its inability to sell the shares between 2001 and
2008, even taking into account any interest on money received from
their sale, because the share value increased. The applicant company
might have theoretically suffered some loss if it had sold the shares
exactly on those days when, owing to market forces, their price was
at its local maximum. Such a conclusion that the applicant company
would have sold the shares on those precise dates is, however,
speculative and cannot constitute the basis of an award for pecuniary
damage.
- The
Court adds that it is likewise speculative and not supported by its
principal judgment (see Benet Czech, spol. s r.o. v. the Czech
Republic, no. 31555/05, 21 October 2010)
to conclude that the duration of the seizure was already in breach of
the Convention prior to 2001.
- It
notes, however, that the seizure of the shares continues. Under the
Court’s case-law, the applicant company is entitled to a
measure of compensation in respect of losses directly related to the
violation found until the present time, that is, the date of the
judgment on just satisfaction (see Loizidou v. Turkey (Article
50), 29 July 1998, § 31, Reports of Judgments and Decisions
1998 IV). At the same time it must take account of new
circumstances that have arisen since the principal judgment (see
Shtukaturov v. Russia (just satisfaction), no. 44009/05, §
16, 4 March 2010).
- The
Court notes the decision of the Prague High Court of 30 June 2010, by
which the seizure as part of criminal proceedings was terminated with
reference, inter alia, to the principal judgment. The Court
further notes that, as submitted by the Government, the seizure of
the shares continues because of a dispute over its ownership, which
has been claimed by the company TREND since 25 July 2008. The dispute
over ownership is a new issue and a new justification for the seizure
that has not been part of the current application. Consequently, the
Court did not and could not have considered it in its principal
judgment. Thus, even assuming that the applicant company has suffered
loss from the continuing seizure since the principal judgment, the
Court concludes that there is no causal link between this loss and
the violation found in the principal judgment. Consequently, no award
can be made for this period either.
- The
Court adds that the applicant company did not make a pecuniary claim
on any other ground.
- In
these circumstances, it concludes that the applicant company failed
to prove any financial loss that could have had a causal link with
the violation found and consequently its claim in respect of
pecuniary damage must be dismissed.
B. Non-pecuniary damage
- The
applicant company did not originally specify its claim, leaving the
determination of the amount up to the Court. Subsequently, it
requested a minimum of 150,000 euros (EUR) in compensation for the
serious loss of its reputation in international trade.
- The
Government argued that the applicant company had never provided any
evidence that the seizure of the shares had caused damage to its good
reputation or any difficulties in running and planning its business
activities. They suggested that a maximum award of between EUR 3,000
and EUR 10,000 would be appropriate.
- The
Court reiterates its case-law to the effect that it cannot exclude
the possibility that a commercial company may be awarded pecuniary
compensation for non-pecuniary damage. In this context account should
be taken of the company’s reputation, uncertainty in decision
making, disruption to the management of the company (for which there
is no precise method of calculating the consequences) and lastly,
albeit to a lesser degree, the anxiety and inconvenience caused to
the members of the management team (see Comingersoll S.A. v.
Portugal [GC], no. 35382/97, § 35, ECHR 2000-IV;
Sovtransavto Holding v. Ukraine (just satisfaction), no.
48553/99, § 79, 2 October 2003; and Dacia SRL v. Moldova
(just satisfaction), no. 3052/04, § 60, 24 February 2009).
- The
Court observes that the applicant company based its claim on its loss
of reputation. It firstly doubts whether there is any causal link
between the seizure of shares in criminal proceedings against persons
with whom the applicant company has no connection and its reputation.
However, even assuming that the seizure itself could have had a
negative effect on the reputation of the applicant company, the Court
notes that in its judgment it found that the seizure was legal and
pursued a legitimate aim. The violation was found only in respect of
its excessive duration. The Court does not see any causal link
between an alleged loss of the applicant company’s reputation
and the excessive duration of the seizure, which is a fact wholly
independent from the activities of the applicant company.
- The
Court further observes that the applicant company provided no
argument that it had suffered any other prejudice relevant from the
point of view of awarding compensation in respect of non-pecuniary
damage to corporations, which is governed by specific criteria (see
Comingersoll S.A. v. Portugal [GC], cited above, § 35). In
view of the lack of information on the impact of the seizure on the
business activities of the applicant company, the Court is unable to
conclude on its own that the applicant company suffered any
non-pecuniary damage.
- No
award is therefore made under this head and the Court considers that
the finding of a violation constitutes in itself sufficient just
satisfaction for any non-pecuniary damage that the applicant company
might have suffered.
C. Costs and expenses
- The
applicant company claimed CZK 215,429 (EUR 8,669) for legal fees and
other expenses such as translation costs before the Court. It
submitted invoices for a total amount of CZK 155,480.34 (EUR 6,324)
from 2006 and 2007.
- The
Government maintained that the applicant company had credibly
demonstrated only CZK 151,731.50 (EUR 6,172) but of that, only CZK
88,263.50 (EUR 3,590) could be regarded as necessarily incurred. They
thus agreed to an award of CZK 88,263.50 (EUR 3,590).
- According
to the Court’s settled case-law, costs and expenses will not be
awarded under Article 41 unless it is established that they were
actually and necessarily incurred and are also reasonable as to
quantum. Furthermore, legal costs are only recoverable in so far as
they relate to the violation found (see Scordino v. Italy
(no. 1) [GC], no. 36813/97, § 283, ECHR 2006 V).
- The
Court firstly notes that the costs submitted by the applicant company
also include four trips to Strasbourg that cost CZK 48,463.18 (EUR
1,971) in travel expenses. It does not consider these expenses to
have been necessarily incurred as there was no hearing held in this
case and the procedure was solely written. All of the Government’s
submissions were forwarded to the applicant company.
- The
Court, having regard to the complexity and volume of documents in the
present case, considers that the billable hours and the other costs
put forward by the applicant company reflect properly its needs for
proper legal representation, with the exception of CZK 8,687 (EUR
353) for assessing a decision on admissibility where there was no
such decision. Considering that the applicant company incurred
further costs in the present application after 2007, the Court
considers it reasonable to award the sum of EUR 4,000 to cover costs
for the proceedings before the Court.
D. Default interest
- The
Court considers it appropriate that the default interest should be
based on the marginal lending rate of the European Central Bank, to
which should be added three percentage points.
FOR THESE REASONS, THE COURT UNANIMOUSLY
- Holds that the finding of a violation
constitutes in itself sufficient just satisfaction for the
non-pecuniary damage sustained by the applicant company;
2. Holds
(a) that
the respondent State is to pay the applicant company, within three
months from the date on which the judgment becomes final in
accordance with Article 44 § 2 of the Convention, EUR 4,000
(four thousand euros) in respect of costs and expenses, plus any tax
that may be chargeable to the applicant company; the amount to be
converted into Czech korunas at the rate applicable at the date of
settlement;
(b) that
from the expiry of the above-mentioned three months until settlement
simple interest shall be payable on the above amount at a rate equal
to the marginal lending rate of the European Central Bank during the
default period plus three percentage points;
- Dismisses the remainder of the applicant
company’s claim for just satisfaction.
Done in English, and notified in writing on 10 March 2011, pursuant
to Rule 77 §§ 2 and 3 of the Rules of Court.
Claudia Westerdiek Dean Spielmann
Registrar President
